[Franklin]

As we inch closer to the June 30 deadline for cable digitisation in the four metros, there are vital questions that remain unanswered about how this massive exercise, costing Rs 40,000 crore, will impact each stakeholder.

DESPITE BEING the third pillar of the economy, the media industry has for a long time struggled to keep pace with India Shining. The high visibility of the industry and the booming number of TV channels has not necessarily meant a great health record. Fortunately, all that is about to change.

The Cable TV Networks (Regulation) Amendment Act, 2011 makes it obligatory for all cable operators to provide TV channels only in the digital mode. The deadline for the four metropolitan cities (Delhi, Mumbai, Kolkata and Chennai) has been set for June 30. The rest of the country will go digital by December 2014 in phases. When completed, this massive exercise will rationalise the industry structure and give it a real chance to match the pace of the changing consumer demands.

However, as with any measure of this scale and impact, this one is also fraught with many hurdles. For starters, the Bill is hazy on the licensing policy for distributors — Multiple System Operator (MSOs) and local cable operators (LCOs) — and on the central monitoring system.

In the past, the industry has faced a host of problems arising from the complex analog cable distribution system and lack of a uniform regulatory environment. The weaknesses of the current regulatory regime is the absence of any technology standards, uniform policies and the lack of an enforcement system at the regional level for documentation, audits, checks and balances. With digitalisations these problems would hopefully get sorted out.

The government now needs to put into place laws around a few key areas to create ‘effective competition through structured growth,’ such as creating a licensing regime for MSOs and LCOs, ensuring accountability/ disclosure across the value chain and ensuring that there is no monopolistic control over channel distribution by a single (or cartel) entity. In this context, it would be worthwhile to examine the current and future roles of some of the key stakeholders in this game:

The broadcasters: They represent the most uniformly-regulated segment of the industry. This segment is already 100 per cent digitised. Their main grouse was limited control over subscription revenues on account of under reported subscriber data by cable operators. In this transition from analog to digital, they have no direct role to play, although they stand to gain the maximum through increased subscription revenues.

In an industry with 700 channels (approx) over 500 are free-to-air and completely dependent on advertising revenue. After the Digitisation Bill gets implemented as planned, their subscription revenues are projected to grow at a compound annual growth rate (CAGR) of 23 per cent over the present 17 per cent. Another way of looking at it is that the Average Revenue Per User (ARPU), which is presently quite low in India would go up from the present Rs 170-180 to Rs 230-250, thereby increasing the broadcasters and MSOs share of 25 per cent to a healthy 60 or 70 per cent, which would bring it closer to the international benchmarks. Advertisers would also gain as digitalisation would give them the holy grail of targeting, according to experts.

The MSOs and the LCOs: They are the key protagonists in this digitisation process. They are expected to mobilise investments up to Rs 40,000 crore for digitisation and therein lies the rub. Until now, one of the key issues faced by the industry was the inequitable regulatory environment for distributors of various technologies. Unlike direct-to-home (DTH) industry, which has a clearly-laid down licensing, taxation and declaration norms, the cable distribution industry has a skeletal registration policy for MSOs and LCOs.

In the analog environment, the MSOs playedthe role of wholesaledistributors of signals, while the LCOs provided last mile infrastructure and serviced the end customer. These different roles are reflected in their share of revenues as well.While LCOs retain 60 — 70 per cent of the subscription revenue, the MSOs retain only 4-5 per cent. However, to make good this loss, over 90 per cent of the carriage fee collected from the broadcasters is retained by the MSOs.

In the digital regime, where the MSOs are expected to take the lead in making key investments in infrastructure, bear content costs, customer acquisition and customer retention cost, the Government and the Telecom Regulatory Authority of India (TRAI) would have to take into account their changed role and take critical policy decisions related to the new revenue-sharing arrangement between them, assume responsibility of billing and collections, set eligibility and implementation criteria for tax breaks and assume primary responsibility of compliance with the basic quality of service, information sharing and transparency norms.

Along the way, the regulator can expect strong resistance towards digitisation from the customers and industry alike — by the customers who enjoy depressed subscription charges and by the industry stake holders who have created microcosms to extract benefits from a sub-optimal environment.

In order to ensure that the digital cable roll-out does not meet the same fate as that of Conditional Access System (CAS), the regulator (TRAI) and the government would both need to take strong steps in defining technology standards and quality of service to ensure customer co-operation and satisfaction, preventing cartel formation, and creating a level play field for all addressable distribution platforms ie DTH, Digital Cable, hits and IPTV.

For all this and more, the regulator and the government would need to adopt a carefully-drawn incentivebased plan for persuading all parties to shift from analog to digital. Most important, this engagement would need to commence now, otherwise the dream of full digitisation may remain a pie in the sky, neither serving complex requirements of the industry nor creating better TV viewing for the customers.

Source: Tehelka